Security Theater Meets Regulatory Capture

by Tim Lee on December 17, 2006 · 2 comments

Via Amanda, MSNBC reports that the FCC is holding onto extremely useful cell phone usage data for fear it will aid terrorists:

Any time a carrier has an outage that affects 900,000 caller minutes–say a 30-minute outage impacting 30,000 customers–it must report it to the Network Outage Reporting System. In the beginning, the reports all were from “wire line” telephone providers and were available to the public. But in 2004, the commission ordered wireless firms to supply outage reports as well. But at the same time, it removed all outage reports from public view and exempted them from the Freedom of Information Act. The FCC took the action at the urging of the Department of Homeland Security, which argued that publication of the reports would “jeopardize our security efforts.”

As Amanda puts it:

It’s unclear how terrorists would use this information; perhaps with an appeal to the same magic force that would let them use an ounce of shampoo in an 8-ounce bottle to take down an airplane. But it sure is clear how this policy benefits the cellular companies.

Relatedly, Bram Cohen quotes a friend who says that information about power grid outages are no longer published for the same reason.

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Carney on Regulatory Capture

by Tim Lee on September 9, 2006 · 4 comments

As I mentioned back in July, Tim Carney was kind enough to send me a review copy of his new book, The Big Ripoff. With dozens of example, Tim does an excellent job of documenting just how frequently Big Business and Big Government are in bed together.

I particularly liked chapter 7, “Regulators and Robber Barons,” which is chock full of real-world examples of regulatory capture. Carney demonstrates that much of the time, the standard media story of big government pushing regulations on businesses and businesses resisting them is wrong. In many cases, what happens is that established businesses argue in favor of regulations that they perceive as hurting their competitors (often smaller competitors) more than themselves. For example, in 2001, the largest biotech companies lobbied for increased FDA scrutiny of biotech crops which, as the FDA’s own proposed rule acknowledged, would have a disproportionate impact on smaller biotech companies that lacked the resources to jump through the FDA’s hoops. He tells the story of FedEx, an upstart cargo carrier who in the 1970s was prevented from expanding by government regulations that were strongly supported by the Flying Tigers, the then-dominant air cargo company. And he discusses the controversy over “a la carte” cable regulation, which most of the cable industry opposed, but which CableVision–a company that had already invested in the equipment to offer a la carte services–lobbied for. Carney argues that CableVision calculated that imposing a la carte mandates would hurt its competitors more than it would hurt itself.

Continue reading →

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“Forever Captured by Corporations”: Reforming Telecom and the FCC

by Brent Skorup on December 4, 2013 · 0 comments

There is bipartisan agreement that the 1996 Telecom Act was antiquated only shortly after President Clinton’s signature had dried on the legislation. There is also consensus that spectrum policy, still largely grounded in the 1934 communications statute, absolutely distorts today’s wireless markets. And there is frequent criticism from thought leaders, right and left, that the FCC has been, for decades, too accommodating to the firms it regulates and too beholden to the status quo (economist Thomas Hazlett quips the agency’s initials stand for “Forever Captured by Corporations”).

For these reasons, members of Congress every few years announce their intention to reform the 1934 and 1996 communications laws and modernize the FCC. Yesterday, some powerful House members unexpectedly reignited hopes that Congress would overhaul our telecom, broadband, and video laws. In a Google Hangout (!), Reps. Fred Upton and Greg Walden said they wanted to take on the ambitious task of passing a new law in 2015.

Much depends on next year’s elections and the composition of Congress, but hopefully the announcement spurs a major re-write that eliminates regulatory distortions in communications, much as airlines and transportation were deregulated in the 1970s–an effort led by reformist Democrats.

About ten years ago, more than fifty scholars and technologists crafted reports which constituted the Digital Age Communications Act (or DACA) that is largely deregulatory (a majority of the group had served in Democratic administrations, interestingly enough). In 2005, then-Sen. Jim DeMint proposed a bill similar to the working group’s proposals. The working group’s recommendations aged very well in eight years–which you can’t say about the 1996 Act–and represents a great starting point for future legislation.

As Adam has said the DACA reports have five primary reform objectives:

– Replacing the amorphous “public interest” standard with a consumer welfare standard, which is more well-established in field of antitrust law

– Eliminate regulatory silos and level the playing field through deregulation

– Comprehensively reform spectrum not just through more auctioning but through clear property rights

– Reform universal service by either voucherizing it or devolving it to the States and let them run their own telecom welfare programs; and

– Significantly reforming & downsizing the scope of the FCC’s power of the modern information economy

DACA redefines the FCC as a specialized competition agency for the communications sector. The FCC largely sees itself as a competition agency today but the current statutes don’t represent that gradual change in purpose. The FCC is slow, arbitrary, Balkanizes industries artificially, and attempts to regulate in areas it isn’t equipped to regulate–the agency has a notoriously bad record in federal courts. These characteristics create a poor environment for substantial investments in technology and communications infrastructure. The DACA proposals aren’t perfect but it is a resilient framework that minimizes the effect of special interests in communications and encourages investments that improve consumers’ lives.

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New Paper on “A History of Cronyism & Capture in the Information Technology Sector”

by Adam Thierer on July 2, 2013 · 1 comment

The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “A History of Cronyism and Capture in the Information Technology Sector.” In this 73-page working paper, which we hope to place in a law review or political science journal shortly, we document the evolution of government-granted privileges, or “cronyism,” in the information and communications technology marketplace and in the media-producing sectors. Specifically, we offer detailed histories of rent-seeking and regulatory capture in: the early history of the telephony and spectrum licensing in the United States; local cable TV franchising; the universal service system; the digital TV transition in the 1990s; and modern video marketplace regulation (i.e., must-carry and retransmission consent rules, among others.

Our paper also shows how cronyism is slowly creeping into new high-technology sectors.We document how Internet companies and other high-tech giants are among the fastest-growing lobbying shops in Washington these days. According to the Center for Responsive Politics, lobbying spending by information technology sectors has almost doubled since the turn of the century, from roughly $200 million in 2000 to $390 million in 2012. The computing and Internet sector has been responsible for most of that growth in recent years. Worse yet, we document how many of these high-tech firms are increasingly seeking and receiving government favors, mostly in the form of targeted tax breaks or incentives. Continue reading →

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FCC Commish Robert McDowell on Regulatory Failure & “Regulate My Rival” Politics

by Adam Thierer on June 28, 2012 · 3 comments

This may be the best speech by a regulator that you will read in your entire life. Federal Communications Commission (FCC) Commissioner Robert McDowell delivered an address in Rome today entitled, “The Siren Call of “Please Regulate My Rival”: A Recipe for Regulatory Failure.” I highly recommend it (and not just because I’m cited in it!) It is infused with important insights about the ugly downsides of excessive regulation of technology markets.

McDowell is an astute student of regulatory history and he documents how, despite the best of intentions, economic regulation has often been turned into a tool that industry exploits for their own narrow interests. Sadly, examples of such “regulatory capture” are rampant, as I have documented here before. McDowell notes that many telecom and media companies “suffer from the ‘please regulate my rival’ malady of an industry that has been regulated too much and for too long. History is replete with such scenarios,” he says, “and the desire for more regulation for competitors always ends badly for the incumbent regulated industry in the form of unintended and harmful consequences.” That is exactly right.

I strongly encourage you to read the entire speech, but if you only have time to read one thing, make it the powerful and poetic closing paragraphs, which I have reprinted below:

Continue reading →

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Scott Cleland Abandons his Regulatory Skepticism, Misunderstands the Copyright Clause

by Berin Szoka on November 3, 2011 · 8 comments

I just posted the following comment in response to Scott Cleland’s piece on Forbes: Why Anti-Piracy Legislation Will Become Law.

Scott, have you read my colleague Larry Downes dissection of SOPA over on CNET? The problem isn’t that the bill is too hard on pirates, but that trying to punish piracy in such a crude and draconion manner has plenty of negative unintended consequences:

SOPA effectively introduces new monitoring requirements for all websites that allow user content, even comments posted to blogs. Rightsholders.. need only “a good faith belief that a Web site is ‘avoiding confirming’ infringement, and they can demand that payment systems and advertising networks cease doing business with the Web site.”

Larry suggests that lawmakers’ focus is simply misguided:

If parasitic foreign Web sites are truly costing the U.S. economy significant losses (a claim made regularly by content industries but without credible data to back it up), then the best use of government resources is not to surgically remove hyperlinks and DNS table entries. Rather, we should step up the pressure on foreign governments to enforce their own laws and international treaties extending U.S. protections abroad.

And indeed, one positive development in SOPA is a provision that does just that. It requires both the State and Commerce Departments to make protection of U.S. copyright and trademark a priority in both diplomatic and trade negotiations. To fulfill SOPA’s stated goal of reducing foreign infringement of U.S. interests, that section should have been the beginning and the end of the bill.

The proposed legislation, unfortunately, goes much farther, losing sight of any actual harms in need of legislative correction, and invoking repeatedly the likely application of the law of unintended consequences.

Larry’s focus on the unintended consequences of regulation, and his emphasis on finding narrow solutions to clearly defined problems is what prudent policymaking should be about. In fact, that’s why Larry and I at TechFreedom have been so critical of net neutrality regulations as a sweeping, prophylactic remedy for an ill-defined problem when less restrictive alternatives like enforcing antitrust laws and consumer protection laws would work better. In fact, I seem to recall that you on the same side as us in those arguments!

But I’m sorry to say that I realized long ago that, while we arrived at the same place on net neutrality, we came to it from profoundly different places. I won’t presume to speculate as to exactly what motivates you, but it sure isn’t the prudent conservatism of Edmund Burke or F.A. Hayek’s focus on the limitations of human knowledge and the dangers of top-down planning. Continue reading →

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Congrats Tim Wu! But Please Don’t Toss “The Regulatory Switch”

by Adam Thierer on February 8, 2011 · 6 comments

Congrats are due to Tim Wu, who’s just been appointed as a senior advisor to the Federal Trade Commission (FTC). Tim is a brilliant and gracious guy; easily one of the most agreeable people I’ve ever had the pleasure of interacting with in my 20 years in covering technology policy. He’s a logical choice for such a position in a Democratic administration since he has been one of the leading lights on the Left on cyberlaw issues over the past decade.

That being said, Tim’s ideas on tech policy trouble me deeply. I’ll ignore the fact that he gave birth to the term “net neutrality” and that he chaired the radical regulatory activist group, Free Press. Instead, I just want to remind folks of one very troubling recommendation for the information sector that he articulated in his new book, The Master Switch: The Rise and Fall of Information Empires. While his book was preoccupied with corporate power and the ability of media and communications companies to posses a supposed “master switch” over speech or culture, I’m more worried about the “regulatory switch” that Tim has said the government should toss.

Tim has suggested that a so-called “Separations Principle” govern our modern information economy. “A Separations Principle would mean the creation of a salutary distance between each of the major functions or layers in the information economy,” he says. “It would mean that those who develop information, those who control the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.” Tim calls this a “constitutional approach” because he models it on the separations of power found in the U.S. Constitution.

I critiqued this concept in Part 6 of my ridiculously long multi-part review of his new book, and I discuss it further in a new Reason magazine article, which is due out shortly. As I note in my Reason essay, Tim’s blueprint for “reforming” technology policy represents an audacious industrial policy for the Internet and America’s information sectors. Continue reading →

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Should an Independent Regulatory Agency Head Be Visiting the White House This Often?

by Adam Thierer on November 29, 2009 · 22 comments

by Adam Thierer & Berin Szoka

Move over, health care reform, climate change, and the economy. Judging by White House visits by various government agency heads, the Obama administration instead appears preoccupied with the re-regulation of communications, media, and the Internet. The Administration has just released logs of all visitors to the White House and Executive Office Buildings from Obama’s inauguration through August—including a staggering 47 visits by Federal Communications Commission (FCC) Chairman Julius Genachowski. By contrast, no other major agency head logged more than five visits. Chairman Genachowski obviously has an audience with those at the highest levels of power, including the President himself, but this raises questions about just how “independent” this particular regulator and his agency really are.

Unprecedented Transparency by White House

The Administration deserves credit for releasing these visitor logs, which offer unprecedented transparency into the White House’s workings. Unfortunately, the logs lack visitors’ affiliation and title, making it difficult to discern subtle patterns. Furthermore, each entry indicates only one “visitee” and the total number of people involved. Full disclosure requires identifying all meeting participants. Nonetheless, President Obama’s gesture is a great first step toward improved government accountability.

This openness allows us to ask questions we couldn’t pose for previous administrations—such as why the FCC head seems to have unparalleled access to the White House. Lacking data from previous administrations, it’s difficult to make direct comparisons with previous FCC Chairmen, but the sheer number of visits by Chairman Genachowski leaves no doubt about his uniquely close involvement with the White House. Continue reading →

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The Regulatory Cathedral and the Bazaar

by Tim Lee on March 19, 2009 · 17 comments

Yochai Benkler ponders the death of the newspaper:

Critics of online media raise concerns about the ease with which gossip and unsubstantiated claims can be propagated on the Net. However, on the Net we have all learned to read with a grain of salt between our teeth, like Russians drinking tea through a sugar cube. The traditional media, to the contrary, commanded respect and imposed authority. It was precisely this respect and authority that made The New York Times’ reporting on weapons of mass destruction in Iraq so instrumental in legitimating the lies that the Bush administration used to lead this country to war.

This is a fantastic insight, and indeed, it’s precisely the insight that we libertarians apply to the regulatory state. That is, just as a decentralized media and a skeptical public is better than the cathedral style of news gathering, so too are decentralized certification schemes and a skeptical public better than a single, cathedral-style regulatory agency “guaranteeing” that businesses are serving consumers well. Most of the time the regulators will protect the public, just as most of the time newspapers get their stories right. The problem is that no institution is perfect, and the consequences of failure are much more serious if you’ve got a population that’s gotten used to blindly trusting the authority figure rather than exercising healthy skepticism. Regulatory agencies are single points of failure, and in a complex economy single points of failure are a recipe for disaster.

Will Wilkinson makes the related point that journalists are prone to journalistic capture that’s very much akin to the regulatory capture that plagues government agencies.

Worried that decentralized news-gathering sources won’t be able to do the job the monolithic newspapers are leaving behind? Jesse Walker has a great piece cataloging the many ways that stories can get from obscure city council meetings to popular attention.

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The End of Permissionless Innovation?

by Adam Thierer on January 10, 2021 · 0 comments

Time magazine recently declared 2020 “The Worst Year Ever.” By historical standards that may be a bit of hyperbole. For America’s digital technology sector, however, that headline rings true. After a remarkable 25-year run that saw an explosion of innovation and the rapid ascent of a group of U.S. companies that became household names across the globe, politicians and pundits in 2020 declared the party over.

“We now are on the cusp of a new era of tech policy, one in which the policy catches up with the technology,” says Darrell M. West of the Brookings Institution in a recent essay, “The End of Permissionless Innovation.” West cites the House Judiciary Antitrust Subcommittee’s October report on competition in digital markets—where it equates large tech firms with the “oil barons and railroad tycoons” of the Gilded Age—as the clearest sign that politicization of the internet and digital technology is accelerating.

It is hardly the only indication that America is set to abandon permissionless innovation and revisit the era of heavy-handed regulation for information and communication technology (ICT) markets. Equally significant is the growing bipartisan crusade against Section 230, the provision of the 1996 Telecommunications Act that shields “interactive computer services” from liability for information posted or published on their systems by users. No single policy has been more important to the flourishing of online speech or commerce than Sec. 230 because, without it, online platforms would be overwhelmed by regulation and lawsuits.

But now, long knives are coming out for the law, with plenty of politicians and academics calling for it to be gutted. Calls to reform or repeal Sec. 230 were once exclusively the province of left-leaning academics or policymakers, but this year it was conservatives in the White House, on Capitol Hill and at the Federal Communications Commission (FCC) who became the leading cheerleaders for scaling back or eliminating the law. President Trump railed against Sec. 230 repeatedly on Twitter, and most recently vetoed the annual National Defense Authorization Act in part because Congress did not include a repeal of the law in the measure.

Meanwhile, conservative lawmakers in Congress such as Sens. Josh Hawley and Ted Cruz have used subpoenas, angry letters and heated hearings to hammer digital tech executives about their content moderation practices. Allegations of anti-conservative bias have motivated many of these efforts. Even Supreme Court Justice Clarence Thomas questioned the law in a recent opinion.

Other proposed regulatory interventions include calls for new national privacy laws, an “Algorithmic Accountability Act” to regulate artificial intelligence technologies, and a growing variety of industrial policy measures that would open the door to widespread meddling with various tech sectors. Some officials in the Trump administration even pushed for a nationalized 5G communications network in the name of competing with China.

This growing “techlash” signals a bipartisan “Back to the Future” moment, with the possibility of the U.S. reviving a regulatory playbook that many believed had been discarded in history’s dustbin. Although plenty of politicians and pundits are taking victory laps and giving each other high-fives over the impending end of the permissionless innovation era, it is worth considering what America will be losing if we once again apply old top-down, permission slip-oriented policies to the technology sector. Continue reading →

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